Site icon uBlockchain

What you should do in a crypto bear market| Ultimate Guide

what-you-should-do-in-a-crypto-bear-market

The cryptocurrency market is witnessing double-digit percentage declines, with bitcoin (BTC) momentarily falling below $30,000 on May 9, 2022, for the first time since July 20, 2021. Numerous investors are naturally apprehensive due to the prevailing market attitude and the turbulence rocking the TerraUSD (UST) stablecoin and LUNA. However, this does not imply you should throw in the towel and abandon the crypto bear market.
Instead, what should you do?

How to survive crypto bear market

1. Buy the Dip with Dollar-cost Averaging:

When markets become incredibly unpredictable, it’s all too easy to be on the wrong side of a crypto deal, but that doesn’t mean you have to watch your portfolio collapse by the hour.

Investors who have a reserve of fiat currency or stablecoins, or who have liquid funds in their bank accounts, will be able to “buy the dip.” This phrase is often used in the cryptocurrency world to describe the practice of buying more cryptocurrency whenever the market goes down a lot.

The theory is that if and when prices rebound to their earlier highs, buyers of dips will receive a handsome profit. This reflects the iconic words of legendary stock trader Warren Buffett: “When there’s blood on the streets, you buy.”

While it is possible to purchase a dip in a single transaction, dollar-cost averaging (DCA) is the most recommended method. To do this, you need to divide your reserve funds into smaller amounts and make several trades over time..

The rationale behind this is that it’s extremely difficult to identify exactly when an asset has bottomed out (reached its lowest price before reversing), so rather than spending all of your money at once, it’s usually wiser to buy a modest amount and wait to see if the asset’s price falls further. If it does, purchase a bit more, etc.

Unless you are fortunate enough to go all-in at the right time, this will usually yield significantly better results than putting your entire capital in a single trade.
READ ALSO: 10 Crypto Trading Strategies For Beginners

2. Use indicators to determine the best entry point.

For investors with a basic or advanced understanding of technical analysis—the discipline of predicting the price movements of an asset-based on chart trends, indications, and patterns—it is feasible to utilize specific indicators to determine when an asset has reached its bottom.

Obviously, no indicator is failsafe, but they can often provide a solid indication of when to purchase a downturn.
Utilizing the Relative Strength Index (RSI) indicator, a momentum oscillator comprised of a channel and a line that oscillates in and out of it, is a common way. There are two important components to this tool:

1. Overbought: An item is “overbought,” or overvalued when the indicator line breaks out above the channel. This usually means that the price is about to go down.
2. Oversold: An asset is said to be “oversold” or undervalued when the indicator line breaks out below the channel. This usually means that prices will go up soon.

While these two signals can be employed effectively on their own, they do not always precisely anticipate bottoms or tops, especially on shorter time frames such as 4-hour, hourly, and 30-minute alternatives. The RSI divergence strategy is a superior approach.

Notably, the RSI follows a similar pattern to the price of an asset, meaning that when the price declines, so does the RSI indicator line. Occasionally, though, the two lines move in different directions. This is an RSI divergence, and it often means that a trend is about to change.

To identify a bottom, observe whether the RSI line makes a higher high while the price produces a lower low. If a reversal is likely, the RSI line should be close to or inside the oversold area on a longer time frame, like the daily.

On bitcoin’s daily chart (A), an RSI divergence indicated a significant trend reversal, followed by a price increase. Three months later, there was a second RSI divergence (B), this time in the overbought range, which meant that the trend was quickly going in the wrong direction.
Graph of BTC/USD (TradingView).

3. Spread your investments across multiple cryptocurrencies.

Also, similar to how it is practically impossible to foresee the bottom of a bear market, it is similarly impossible to tell which of the 17,000+ cryptocurrencies will rebound the quickest or rise the most.

One method to hedge your bets is by using DCA for a variety of crypto assets. This may reduce your trade sizes even further, but it will reduce your overall risk. Obviously, it is insufficient to arbitrarily select crypto assets and invest in them. If you want to buy a crypto asset, you’ll need to do a lot of research on it, looking for the following:

4. Do not panic.

This may seem obvious, but regulating your emotions during bear markets is more difficult than it sounds. In fact, it is frequently cited as the most difficult skill to acquire while learning to trade professionally.

Fear and greed are potent motivators that frequently lead to rash decisions that result in lost deals. This is a crucial stage. Before initiating a trade, having a specific plan can make all the difference between generating a profit and losing money.

Taking profit is another seemingly simple but extremely challenging skill to learn. Often, greed will keep you in a trade beyond your take profit level. In the belief that the asset’s price will continue to grow. This raises the danger that the trade will go against you, especially if you do not implement stop loss.

Conclusion:

The cryptocurrency market is extremely unpredictable, and while you may be disappointed if you missed the opportunity to buy the dip this time, it is probable that another cryptocurrency crash is on the horizon.

Remember to take profits, save some money in case the market crashes, and keep your cool when bears come into the market.

Reference

www.coindesk.com

Related Posts

NFT Marketing Explained| ultimate guide

Best Dogecoin Faucets ranked| Best ways to earn free crypto

Best Ways to Earn Free Crypto In 2022

Exit mobile version